Northern Virginia Realtors: Buying New Construction? Better Read Your Contract.

Buying New Construction? Better Read Your Contract.

Bob and Terri,
just a note of caution as you are contemplating the purchase of a "yet to be constructed home" from a builder. The new construction contracts in our area are very long often 40-65+ pages, and they are heavily weighted in the favor of the builder...as compared to our resale contract which is around 20 pages with addendums, and is more contractually even handed in dealing with buyer and seller interests.
 
Also...The new home rep ...no matter how nice they are...works for the builder...not you. They have no fiduciary responsibility to you the buyer. It is his job to represent the seller's interests. 
 
 
Can you buy new construction without headaches and an enormous hassle? Yes. Jan and I enjoy helping folks do this all the time but you need to know that the contractual process that you went through when you bought your last re-sale home is quite different than the legal process of buying a home that is yet to be built. Below are some of the issues that are different in the process of re-sale vs. pre-built construction.
 
In order to start construction, you will be required to make a deposit of approx $45,000 as compared to the $7000-$8000 earnest money deposit you would make in this area when contracting on a $650,000 re-sale home. When you pick your options, the builder will want half of that amount in cash. For example...if your option package is $20,000...you need to bring an additional $10,000 to the table at that time.
 
 In your case, you will be selling your current property in order to move to the new place. The builder has told you verbally that the property will be ready in 4 months. He will not contractually give you a specific date for settlement, as would be the case should you purchase a re-sale home,... so that you cannot contractually be sure that you will have a finished place to move into.
If your new place is not ready by the time the builder says, you will need to plan for temporary housing and storage of your goods unless the buyer of your current home permits you to rent back until your newly constructed home is complete.
The builder is not contractually liable for your inconvenience or expense caused by his delay in delivery.
That is the biggest buyer concern when buying a home that is not yet built...it is common that these delays can and do go on for weeks and/or months. I will tell you again...there is zero contractual protection for you as a buyer against this possibility in the typical builder's contract used in our area.
 
 
 
Steve and Jan Bachman RE/MAXThe scariest part of the new construction contract in Northern Virginia is the afore mentioned clause in the agreement that states that the builders have 18-24 months to deliver the house...(I have seen a new home rep point this out only once to our clients... voluntarily). When this contract clause is brought up... by us.... the new home rep will say that the builder will never let that happen... but we have never seen that clause removed.
 
Here is the average wording of the key clause in every new home contract around here:
 
 "The Seller (builder) will not be liable to Buyer for any damage by reason of delays caused by an Event of Force Majeure or Otherwise.  In the event of a delay caused by an Event of Force Majeure, Seller will have the right to: (i) Terminate this Agreement; or (ii) extend the time for Settlement; provided, that if Settlement has not occurred, or cannot occur, (A) within Eighteen (18) months from the Effective Date hereof because of an Event of Force Majeure, or (B) within Twenty-Four (24) months from the Effective Date hereof for any other reason, either Party will have the right to Terminate this Agreement"..
 
Please not that it is the seller (builder) alone who has the right to terminate up to 24 months...you the buyer do not.
This is the biggest bone of contention and the largest cause of buyer distress. As a buyer's agent, I totally understand why builders want this clause... BUT you my buyer friend are not legally protected from builder delays. All you have is the builder's verbal, non contractual promises.
 This should be your biggest concern...everything else is relatively minor..
 
 
 
When I asked about a very fine local builder about this clause, he replied sensibly that the buyer is risking a very small monetary portion of what he the builder has to invest to complete the building process. This makes total sense from his perspective no? Yet...most new home buyers are not made aware of this clause and the potential risk it entails.
 
Be aware that a small builder may have limited financial resources...and you will not know this. He may be working on the construction of just your property and a couple of others. A small financial glitch...and he can go under. Happens every day.Jan and Steve Bachman RE/MAX He can create a new LLC or corporation and be back in business under another name in a month. Do your homework in checking builder backgrounds.
Also, delays can be substantial if the builder and county inspectors cannot agree on some items of the plan...I have frequently seen 3 month delays getting county approval...you are not contractually protected from this time delay and only have the builder's word that he can resolve them.
 
Be aware, also that when you pick your options like counter-tops, cabinets and appliances... the builder generally reserves the right to substitute " like kind" if they cannot get what you asked for. They try to get you something you like but again... you cannot void the contract if they substitute your appliances with something you do not like.
 
 
 
I do not want to deter you away from buying a new build if that is what you want...they are GREAT...but you need to be aware of the possible areas of concern that lie ahead. Most builders are terrific and will do their best to make you happy and get the property delivered on time...that is when they get paid.
But ...I wanted to make it clear that contractually...the builder has all the protections and you have few... other than his word and reputation.  Jan and I have represented many buyers of new construction and we will be with you to the end of the process to assist and advise... and part of our advice is what I just wrote :-)
 
Thanks,
Steve Bachman
RE/MAX
 

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Comment balloon 74 commentsSteve and Jan Bachman • February 11 2016 07:11AM

Comments

Steve and Jan Bachman a cautionary note to take heed of...know thy builders.

Posted by Ginny Gorman, Homes for Sale in North Kingstown RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) almost 2 years ago

There is a lot more than just handing a check and getting the keys to having a home built...You need a professional to help you through it.

Posted by William Feela, Realtor, Whispering Pines Realty 651-674-5999 No. (WHISPERING PINES REALTY) almost 2 years ago

This is great information. There is a reason why there is a four year degree in Construction Management, working with a builder is a both an art and a science and it is worth having an expert to help you through the building process.

Posted by Tamara Elliott-Deering (Central Metro Realty) almost 2 years ago

Steve, You've covered the bases on why a buyer NEEDS their own representation for buying new construction.  I've never met a builder's rep who wasn't nice, but they DO work for the builder, period. 

Posted by Liz and Bill Spear, RE/MAX Elite Warren County OH (Cincinnati/Dayton) (RE/MAX Elite 513.520.5305 www.LizTour.com) almost 2 years ago

On the other hand it really does not matter if the contract is 18 pages or over 50. When you buy a new construction home you get to pick what you want in it. No one lived there before. There is nothing like buying brand new. I love it. I am in the process right now of buying new construction and probably will always buy new. The best advice is to ALWAYS GO WITH A REALTOR!

Posted by Michelle Grunberg, When Honesty, Integrity and Loyalty Matters! (Keller Williams Realty Centre) almost 2 years ago

Sounds like buyers in your area need legal representation in addition to a buyer agent.  There are many possible pitfalls with new construction. In our area it's customary not to do inspections - what can be wrong with a new home, right? SO many things might not have been done properly. 

Posted by Olga Simoncelli, CONSULTANT, Real Estate Services & Risk Management (Veritas Prime, LLC dba Veritas Prime Real Estate) almost 2 years ago

Thank you all! Just got back from meeting a builder with our clients. We shall see what happens...an awesome home to be sure BUT if he cannot deliver on time ...our clients would be living in a hotel....This is always a risk unless your buyers are lucky enough to be renting locally on a flexible month to month lease....which seldom happens :--)

Posted by Steve and Jan Bachman, Realtors - Northern Virginia (RE/MAX Gateway, Reston, Herndon, Ashburn, Sterling, Fairfax ) almost 2 years ago

Now I won't attack you for what you wrote, I'm sure much may be true or may be your personal experience, however being married to a builder, and being very involved in supplying the lawyer the specs and the glue between between the buyer and my husband, I'd say you paint a pretty negative picture that doesn't hold true for all New Constrution. My husband is a man of honor especially when it comes to his skills in New Construction. We have often represented a deal where I was both the selling agent, and I had the buyer. Not only does he deliver what's on the contract and in record time, but often exceeds buyers expectations because of his desire to make the buyers happy. And as for a guareentee, he covers everything for a year. Lastly I'm happy to add, many of the people my husband has built homes for, have become lifelong friends. I won't discount what you write, but know it's definately not representative of all new construction deals. Thank you.

Posted by Ellen Caruso (Daniel Gale Sotheby's International Realty) almost 2 years ago

There is definetely a big difference between the new build and traditional resale.  Buyers should work with an agent, and make sure to know your rights.

Posted by David Alan Baker Laveen Realtor & South Phoenix Realtor, Your local Expert (HomeSmart) almost 2 years ago

Steve, I just closed 3 new construction sales in January. All we closed on time with no issues.  Like Barbara Todaro points out ... not all builders are the same just as all agents are not the same. Some perform ... some dont. 

Posted by Kathleen Daniels, San Jose Homes for Sale - Probate Broker (KD Realty - 408.972.1822) almost 2 years ago

Most of the homes I sell are new construction.   You are making generalizations, what facts are you basing your statements on?

Posted by Linda Metallo DiBenardo (Re/max Impact, Lockport, Illinois) almost 2 years ago

Just because it's the builder's contract, I've been known to add Addendum when it comes to things that will protect and/or be in the best interest of my buyer clients.  Yes, the builder's have their own contracts, but they are bound by it too.  The best thing to do is review it with the buyers and look for terms which the buyer can hold the seller to.  A good buyers agent can help, that's for sure!

Posted by Carla Muss-Jacobs, Principal Broker (503) 810-7192, Buyer Focused ~ Buyer Results (BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time) almost 2 years ago

Steve, 42% of my business comes from working as a buyer's agent on new construction. It is risky business. Buyers don't have the same protections as they do with re-sales. The contracts are long and written to the builder's advantage which is why buyers should always have their own representation, especially, when buying new construction.

Posted by Tammie White, Broker, Franklin TN Homes for Sale (Franklin Homes Realty LLC) almost 2 years ago

Steve and Jan, then there is what happens if the builder bellies up with your earnest money and advances for upgrades.  That's pretty darned scary.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) almost 2 years ago

Steve and Jan Bachman - so true! I have many buyers for new construction - and about only 50% of them closed in time.

One of them was supposed to be delivered in 3 months - took 10 months....wow!

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (eXp Realty) almost 2 years ago

Steve and Jan Bachman I think a big problem is when a buyer is not being represented.  Of course, this is not the builder's fault but the buyer's who thought he could either get a better deal without an agent or just thought they didn't need one.  One situation I particularly didn't like where I had a  buyer walk after many months was one builder wanting over 30% down before they even broke ground.  That was a year ago and they still have not brokern ground.

Posted by Elyse Berman, PA, CRS, Pet-Friendly Realtor, 561-716-7824 (Best Connections Realty, Inc.) almost 2 years ago

Success with buyers and new builds all depends on the builder and whether the buyer is represented. Some builders are great and some are not. 

 

 

Posted by Kat Palmiotti, The House Kat (Grand Lux Realty, 914-419-0270, kat@thehousekat.com) almost 2 years ago

As having done building, developing and selling subdivision product in my lifetime, I made sure everything that could be done was done and then I added to that.  I know of a builder right now who bends over backwards to customer serve 100% and is a stickler for being good mouthed. He is second generation developer builder by the way and all his staff is knowledgeable. His sub-contractors are superior or they don't work for him. Anyone who wants to purchase a new product has to find HIM or ME...They will be just fine

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) almost 2 years ago

Our local builders will generally accept our GAR new construction contracts even if they are allowing buyers to choose finishes.  Custom build and they are generally using the builder's contract. Most builders in our area for any length of time I find reputable and fair, but as new ones move in I too am warey of "after" the sale and finishing on time and other things that could cost buyer clients. You've pointed out a lot of concerns that they should be aware of.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) almost 2 years ago

Steve, what a clear warning to buyers who want new construction. The message is: ALWAYS USE A KNOWLEDGEABLE REAL ESTATE AGENT TO REPRESENT YOU.

The Surgeon General should post your warning at the door of every builder.

Posted by John Wiley, Lee County, FL Real Estate GRI, SRES,GREEN,PSA (Jones & Co. Realty) almost 2 years ago

New builders will also try and dangle free upgrades and incentives in front of you to take your eyes off of the negatives. It's always best to be represented by a professional real estate agent when purchasing a new build property! 

Posted by Nicole Doty - Gilbert Real Estate Expert, Broker/Owner of Zion Realty ZionRealtyAZ.com (Zion Realty) almost 2 years ago

Buyer beware

Posted by Scott W. Johnson, Insurance Broker-Agent (Marindependent Insurance Services LLC) almost 2 years ago
Thanks for your comments. My article was not intended to be even handed or a tutorial on both sides of the new home construction and sales process. It was to  point out the lack of home buyer contractual protection in new home construction contracts that exist in our northern Virginia area. We work outside Washington DC...the market is dominated by national builders who construct subdivisions of hundreds of homes...the contract is written "their way or the highway". But big developer or small builder...The main point of the post was that most new home buyers fail to realize the nature of the contract they are entering into. The post above was a slightly modified email I sent to buyer clients before meeting with a new home rep. later in the day
When we had the meeting...what I said would happen in the email....happened exactly. The meeting was cordial and friendly and factual. My client asked the builder when he could deliver...(ground was not yet broken)... he said 4 months. My client then asked the builder if he would would contractually agree to a 4 month delivery date. He politely refused stating that you never know what is going to happen with the weather, with the county inspectors, with the roof truss and drywall delivery etc....all normal and common concerns that all builders have. I said to the builder rep, "what does the contract state is your obligation as far as delivery?", she said "18-24 months." My client asked the builder if he would remove that clause and substitute a date closer to his 4 month promise...he politely refused stating that he had hundreds of thousands of dollars at risk and that he needed to protect himself. My client chose options...she said "What happens if if you can no longer get what I choose as far as appliances, tile etc.?" The builder said that he reserved the right to substitute "like kind"...and that she could not void the contract if she didn't like the replacements....the builder than tried to steer our client to his lender, etc. This is all common everyday stuff in the new home biz...but it is news to most new home buyers. 
Builders love me...they do...they buy me beer. But when my wife and I bring a buyer to their site... they expect us to work for and protect our client throughout the process...failure to point out the contractually weak position and few options for escape that our buyer client has once they sign the contract would be irresponsible and unethical.  
Most builders are terrific, fun and honest but they protect themselves... not our client.  If our buyer client wants the property...they have to sign the one sided contract. That's the way it is. By the way, I am fine with this if the client has full knowledge and disclosure of what they are signing.
If  builders you know will contractually guarantee a delivery date with monetary penalties paid to the buyer if the builder fails to make the delivery date and who will pay the hotel bill for the client for the 3 extra months they need to finish the home and who will return my clients $30,000 deposit promptly without fuss if the delivery date slides more than 60 days.... Then please post their contract clauses stating their written policy protecting the buyers in these areas and we will sing their praises. In the meantime we must continue to represent the  buyer client's interests, pointing out the protection disparity in the contracts and making sure that our clients understand their true legal protection or lack thereof.  I tell you the truth...most buyers do not realize that they are signing a contract which contains the following clause in every new home contract around here or the legal ramifications thereof:   "Seller will not be liable to Buyer for any damage by reason of delays caused by an Event of Force Majeure or otherwise.  In the event of a delay caused by an Event of Force Majeure, Seller will have the right to: (i) Terminate this Agreement; or (ii) extend the time for Settlement; provided, that if Settlement has not occurred, or cannot occur, (A) within Eighteen (18) months from the Effective Date hereof because of an Event of Force Majeure, or (B) within Twenty-Four (24) months from the Effective Date hereof for any other reason, either Party will have the right to Terminate this Agreement"...I totally get why the builder wants this clause BUT tell me where my buyer client is legally protected other than by the builder's verbal, non contractual promises. 
Posted by Steve and Jan Bachman, Realtors - Northern Virginia (RE/MAX Gateway, Reston, Herndon, Ashburn, Sterling, Fairfax ) almost 2 years ago

Most real estate agent don't understand the contracts.  Or, how about my recent post about the NCREC not even understanding!  LOL

Posted by Carla Muss-Jacobs, Principal Broker (503) 810-7192, Buyer Focused ~ Buyer Results (BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time) almost 2 years ago

Great Article.  That is very informative for agents and consumers.  Thank you for sharing.

Posted by Amy Myers (Century 21 American Heritage) almost 2 years ago

Wow. Sure glad I don't live in your part of the country.  Sounds like the new home builders there are almost like most politicians. Unscrupulous and untrustworthy.

Posted by Jon Quist, Tucson's BUYERS ONLY Realtor since 1996 (REALTY EXECUTIVES TUCSON ELITE) almost 2 years ago

Nice topic to explore today. I enjoyed the comments and plan to discuss this with other agents. I would say that most builders are doing the proper thing.

Posted by Ron Aguilar, Mortgage & Real Estate Advisor since 1995 (Continental Mortgage) almost 2 years ago

I am an agent for a small track builder. The contracts are not that long and the deposits are not that high. Buyers may seek an attorney for changes Pls know certain items must be for the builder. What happens if the buyer chooses 50,000 in upgrades that Include odd color selections and want to walk. The builder then Gets stuck with the loss and has to resell or redo those items. Township delays are uncontrollable. New construction is not for everyone but i disagree with the heading of Beware! Many homebuyers want to customize their home and can't get that with a resale. Proper guidance can make it a great experience.

Posted by Janet Larsen (Remax Connection) almost 2 years ago

Knowing who you represent at all times is key.  Enjoyed the back and forth comments. Many would have made good stand alone posts. Glad to see you posting and congratulations on the feature! 

Posted by Margaret Rome, Baltimore Maryland, Sell Your Home With Margaret Rome ( HomeRome Realty 410-530-2400) almost 2 years ago

Excellent blog.   Thanks for pointing out the scary part of the contract ...  

There are many things to consider when builidng a home.  

Thanks for sharing.

Posted by Dinah Stallworth, NATCHITOCHES, LA HOMES FOR SALE (Priority Real Estate LLC - 800.978.4847) almost 2 years ago

I thought this was an interesting read.  In my experience, builders do everything they can to avoid working with buyers agents - everything from refusing to pay a commission (or very small), to trying to go around the agent to speak directly with the buyer.  In my experience, I don't blame them and I warn my clients of what's being done.  Model homes are beautiful and my clients are often distracted by the new and the shiny.... but they are very often disappointed as they wait to close or wait for the punch list to be completed.  

 

I can't tell you how many times I've had to explain why a home owned by 123 Main St. LLC is a warning sign for my buyers.....

Posted by Michael Hinchliffe (The Bean Group) almost 2 years ago

Good topic S & J,

It is ironic that more buyers enter into agreements without buyer representation in new builds than resales (they go to the model and sign up with the agent on duty) and as you so aptly point out they need it more than ever!

Posted by Dana Basiliere, Making deals "Happen" (Rossi & Riina Real Estate) almost 2 years ago

I have found them to be a pain to deal with here.

Posted by Rose Mary Justice, Synergy Realty Pros (Synergy Realty Pros) almost 2 years ago

sounds like you have terrible builders to work with. . . . I have sold new homes since 1986 and we did not have 50 pages of paperwork. . .. yes we did make the buyer beware so they knew exactly what they were receiving. . .  a very financially secure builder. . . .sounds like I worked with a great builder instead of who you have to work with. . . . best of luck -- sounds terrible

Posted by sandy straley, Selling Homes for over 40 Years (Rindlesbach Homes) almost 2 years ago

Those are all good points that have been brought up.  I have seen some of these new constrction homes less then 10 years down the road with structural issues including cracked foundations, etc...

Posted by Anthony Vosilla (Tony's Appraisal Services) almost 2 years ago

Same is true here in Florida with our builder contracts, protecting the builder, not the buyer.  Most of our builder contracts say the builder can take up to two years to build the new home, which, like you,  I also point out to my buyers.  You are right, the builders rep does not point that out.

Posted by Susan Logan, Broker/Owner (Logan Land & Homes, Inc.) almost 2 years ago

I represent buyers building new quite often. Just a few rules to follow to make life easier. Just because they ask for a large deposit does not mean they will not take a small one. Even a really small one to be increased to simply small if progress is made in a specified time frame. Use the same sales people with national builders. This can often be done even in different developments. With regional builders ~~ get to know them well and negotiate above the salesperson level. Builders like to know the realtors that actively sell their homes.

Posted by John Rakoci, North Myrtle Beach Coastal Carolinas (Eagle Realty) almost 2 years ago

A great example of Caveat Emptor!  "Buyer Beware"

Posted by Diana Dahlberg, Real Estate in Kenosha, WI since 1994 262-308-3563 (1 MONTH REALTY) almost 2 years ago

I've been fortunate to represent buyers in the purchase of new builds with local Dallas builders who are upfront, use contracts that are easy to understand, communicate well, meet completion dates, etc.  It sounds like my clients have been fortunate.

Posted by Sharon Parisi, Dallas Homes (United Real Estate Dallas ) almost 2 years ago

I always have to laugh when a client says, I want a new house so I know there won't be any problems.....a lot of times it's the older home that's without problems.  I've known some tract homes that ended up in litigation because of the shotty work that was done.

Posted by Karen T Brown (HomeBased Realty) almost 2 years ago

 Hi Steve and Jan.  When it comes to new construction I've seen the good, the bad and the ugly. Buyers who aren't represented by an agent are rolling the dice and the odds are heavily with the builder.

Posted by Nancy Laswick, Your REALTOR® For The Valley Of The Sun (United Real Estate) almost 2 years ago

Hi personally I've had good experiences with the large national builders however I imagine a smaller custom builder could carry more risk.  

Posted by Joy Bender, Who You Hire Matters (Pacific Sotheby's) almost 2 years ago

Oh do I have a story to tell. Please post more. Great great post!!!!

Posted by Anne Edwards Johnson, Austin Realtor | HookemhomesATX (512)917-5260 (RE/MAX Austin Skyline ) almost 2 years ago

Thanks for the post and the comments. Good advice to beware of and suggestions on how to negoitiate for the buyer.

Posted by Debbie & Rick Miller, Fort Myers Beach Real Estate (Paradise Realty of SW FL LLC) almost 2 years ago

I'm sorry that you have had such an awful experience with your builder.

The builder I work with is nothing like this, but they are an urban infill builder vice a huge subdivision builder.

But thanks for motivating me to write up a rebuttal blogpost! It's been a while since I posted.

Posted by Lisa Avila, Sail Home Suncoast (RE/MAX Metro ) almost 2 years ago

The misconception that buyers have, is that if they go into an onsite sales office at a new neighborhood, they will be able to purchase the product at a reduced price because the builder will not be obligated to pay a sales commission.  Not true!  Take heed of this information in this informative post!

Posted by Carol Tunis, Carol Tunis...a "HouseSold" name! (Florida Homes Realty & Mortgage) almost 2 years ago

Yes, definitely do some research on the builder.  Same for buyers purchasing a resale. Do some research on the actual builder and see what the reviews are for their homes...

Posted by Janet Partlow, Lake Conroe area, Conroe, Willis and Montgomery! (JLP Realty) almost 2 years ago

Yes, the salesperson in the model home works for the builder. Buyers should make sure they take their Realtor with them to visit the models, register with their agent and have their agent with them when signing contract. Although builders use their own contract which does favor them, buyers can still benefit from having an agent with regard to negotiating, understanding the contract, inspections, etc.

Posted by Jill Winchel, We make it easy. You make it home. (Royal Shell Real Estate - Koffman & Associates ) almost 2 years ago

There is a reason to use a REALTOR when going into buy a "New" Home.  Generally you get more for your money on Resale Homes.

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) almost 2 years ago

And beware of the builder who has had "under construction" properties in foreclosure.

Posted by Theresa Akin (CORPUS CHRISTI REALTY GROUP) almost 2 years ago

Great (and timely) post Steve and Jan Bachman I currently have one under contract that was supposed to be completed by (this!) February 16. It has now been pushed to "April or May, best we can tell".  Thankfully my client was not needing to sell a home to buy this one nor would otherwise be "homeless", but as you pointed out, it is hugely difficult to plan for a move-in deta when it can be "whenever". Also, at least here anyway, if you are not physically with your clients to register them the first time they set foot in the sales office, even for a second, they will most likely not provide a commission to you. Some will, and only if your clients tell them immediately they are working with a Realtor, otherwise, no dice.

Posted by Greg Mona, YOUR Local Real Estate and Design Resource in AZ! (RE/MAX Platinum Living) almost 2 years ago

Thank you Steve and Jan for this post. Long time since I worked with a builder and I'm always hesitant because of some of their tactics. Not all but some. Maybe not be scared about builders but the agent must do their due diligence/research the background through their local builders association.

Posted by Theresa Akin (CORPUS CHRISTI REALTY GROUP) almost 2 years ago

That sounds awful. My husband built custom homes for years. If he had operated in that fashion, he'd have been out of business in this small town in a matter of months - as were the many fly-by-nights who won bids based on price.

When the homeowners would call later to see if we could repair what the first builder had done, the answer was no. We weren't about to be liable for things we couldn't see.

Reputation matters, so always check - and always go talk with some of the people living in the homes the contractor has built.  

Posted by Marte Cliff, your real estate writer (Marte Cliff Copywriting) almost 2 years ago

Great post and point. I have to agree that the Buyer is not protected with the completion dates and delays. I recently had this experience and luckly my buyers had sold their home and were renting while the home was getting build.

Posted by Nazir Abdulla (Re/Max Results Realty) almost 2 years ago

All good points, you have to know these things when you enter the contract. That said, I've helped dozens of clients buy new. 

Posted by Karen Fiddler, Broker/Owner, Orange County & Lake Arrowhead, CA (949)510-2395 (Karen Parsons-Fiddler, Broker 949-510-2395) almost 2 years ago

There isn't a great deal of new construction in our area... although more than there used to be...

As you point out, it's important to do your due diligence, and have a Realtor who knows the area and the developers, represent you.  They know the builder's reputation and quality.

Yes, the contracts are often weighted toward the developer.  Know what you're signing and agreeing to... understand the pros and cons.  A good developer will do what he can to meet the deadlines in the contract.  It's his reputation and money on the line, too.

Posted by Alan May, Helping you find your way home. (Coldwell Banker Residential) almost 2 years ago

good points....many buyers do not realize the potential pitfalls in buying new construction

Posted by Paddy Deighan JD PhD, Paddy Deighan J.D. Ph.D (TimeshareLawyers.pro) almost 2 years ago

Very informative post! And the buyers should still get a home inspection! We recently had a 2 page list of corrections for a new home builder to complete. My buyers were shocked!

Posted by M.C. Dwyer, Santa Cruz Mountains Property Specialist (Century 21 Showcase REALTORs) almost 2 years ago

This is a great post. I have buyers right now who thought they'd be in their home last December; the latest target date has now been pushed out until March.

Posted by Lottie Kendall, Serving San Mateo County and San Francisco (Today | Sotheby's International Realty) almost 2 years ago

Thank you for sharing , great post !

I don't have expirience at new construction field yet with a buyers, so good to know some important points.

Posted by Irina Tibbits, Investment, Sellers, Buyers,Relocation (Panhandle Real Estate, Inc) almost 2 years ago

Dear Jan & Steve,

It is good to be prepared for the worst & hope for the best. Most builders around here are pretty professional. You can always find your own lot & do a custom build, but that can be even more hairy.

 

Posted by Dörte Engel, ABC - Annapolis, Bowie, Crofton & rest of Maryland (RE/MAX Leading Edge) almost 2 years ago

Steve, this is a very important post.  I don't sell a lot of new build homes but when I do..they are never finished on time and often I see sloppy workmanship.  Then there is the 'don't expect perfection' clause--and every buyer does, they are paying top dollar!!  You are correct, the builder holds all the cards in these deals.

Posted by Mary Hutchison, SRES, ABR, Specializing in Brookside, Waldo, Prairie Village (Better Homes and Gardens Real Estate-Kansas City Homes) almost 2 years ago

A client just told me this morning that a newly constructed townhouse that he bought from a national builder 10 years ago was delivered 8 months after the promised date. He had to seriously re-arrange his life to handle his interim housing needs. If you read the comments above...this is a common problem all over the US. If you work with builders who are never beyond their verbally promised delivery date....that is just awesome. However, if you represent the new home buyer, it is your fiduciary responsibility to read the contract and point out the danger points and gray areas and advise them to seek legal advice if they are unclear about the ramifications of what they are signing.

Posted by Steve and Jan Bachman, Realtors - Northern Virginia (RE/MAX Gateway, Reston, Herndon, Ashburn, Sterling, Fairfax ) almost 2 years ago

So, you point out all of the pitfalls and land mines in the Builder's contract to the buyer, but it has been my experience that the builders will not negotiate like a listing Agent on a re-sale property will.  So then, are you saying the point of using a buyer's agent is more to simply inform and clarify the contract to the buyer and let them make informed decisions or is your experience that you really can negotiate with builders?

Posted by John Ferrin, Realtor (HomeSmart) almost 2 years ago

John Ferrin, good point.  And if that is the case, is it really the job of the buyer's agent to "inform and clarify the contract?"  That would not make me comfortable as it seems more in the purvue of a good attorney.

We have had occasion to utilize many, many builders/contractors, and I can tell you that I am at my wits end with them.  ALL of them!  Good experience with a contractor?  What's that?  Okay, to be fair, we are currently working with one that has been pretty good.  One.  Yes, one.  We check licensing, insurance, references, etc., etc., and yet, it is difficult for me to remember one that we haven't had a negative experience with.  There seems to be a severe lack of pride in workmanship anymore or anything that remotely resembles ethical treatment of a customer.  50% down payment?!  If it wasn't written seriously, I'd think it was a joke.  There is NO way I would give a builder 50% down!  We've had contractors disappear with far less than that.

If a builder is reputable and in good financial shape they should be able to carry the project.  In any other business it's call "working capital."  When any contractor tells me that they need money to purchase supplies/materials, that is a red flag from the get-go.  That means they are living from check to check, and are one check away from sinking MY project.

And, no timelines?  Are you kidding?  We build timelines into our contracts, and a missed deadline means daily penalties for the contractor.  Who in the world signs a contract like that described in this blog?

The advice to consumers should simply be to walk away.  Vote with your dollar. If enough buyers did this, it would be difficult for this silliness bordering on fraud (and sometimes outright fraud) to continue.  Why should we accept that the situation as described above is "just the way it is" as I've heard some claim?

Posted by Mark Mahaffey (Southeast Realty Brokers, LLC) almost 2 years ago

Buyers can also lose their deposit if they are late on their closing, even if they close...

Posted by John Oman almost 2 years ago

HI Steve and Jan Bachman - I will be reblogging this... even though our area does not have a lot of new construction... It is important to know the pitfalls of new construction.  I personally have purchased 4 new homes and fortunately have had few problems.  I was not a real estate agent at the time and did not understand at all, that the builder's agent didn't represent me.  Also, the job foreman can be the key to success or failure so focus some attention in that area as well.  

Posted by Sheri Sperry - MCNE®, (928) 274-7355 ~ YOUR Solutions REALTOR® (Coldwell Banker Residential Brokerage) almost 2 years ago

Great post on buying new. 

Assuming all the big problems (like completing the building on time) are minimal, the biggest other problem is not realizing that a new home is never perfect and has 'bugs' to work out. Goodness, we had a new HVAC installed on a 50 year old house, and it took at least a month to get it working right. Several of the systems on a new house may need to have tweaking at first. 

 

Posted by Sarah, John Rummage, Love Being Realtors® in the Nashville TN Area! (Benchmark Realty LLC, Nashville TN 615.516.5233) almost 2 years ago

Good points all!  It's great that you bring these points to light because a home buyer typically does not understand the HUGE differences between re-sale and new construction contracts. And when those buyers view those glamorized model homes, they also learn that those extra upgrades are NOT included in the sales prices of new homes wither! 

Posted by Jan Green, HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN (Value Added Service, 602-620-2699) almost 2 years ago

Hello Steve & Jan ... great post with some great information on (New) homes vs re-sales, and on the feature!

Another quick note when clients are interested in having a new home built vs a re-sale, it doesn't hurt to go over some of these 40-60 pages. That way if there are some items that are unclear, they don't turn around and blame the agent.

Posted by Robert Vegas Bob Swetz, Las Vegas Henderson Homes for Sale (Realty ONE Group) almost 2 years ago

the worst is what happens if the builder goes under. They re supposed to keep your deposit in escrow or if agreed to invested in the home but if the builder gets over extended the deposit is at risk.

Posted by Richard Herrmann almost 2 years ago

I enjoyed your informative post, glad I came across it in the archives.

Posted by Winston Heverly, GRI, ABR, SFR, CDPE, CIAS, PA (Winston Realty, Inc.) almost 2 years ago

An excellent post. Some states have better consumer protection laws than others do. It's surprising how some new home shoppers are so dazzled that they don't give a thought to their contract with a builder.

Posted by Eric Kodner, CRS, Madeline Island Realty, LaPointe, WI 54850 - (Madeline Island Realty) over 1 year ago

Love the post and love the commentary! Thanks for writing it!

Posted by Evelyn Johnston, The People You Know, Like and Trust! (Friends & Neighbors Real Estate) over 1 year ago

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